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Everyone loves a bargain and today analysts offer six stocks they say have been oversold for a myriad of reasons. Investors waste no time slashing share prices on profit downgrades, regulatory changes, negative sector sentiment, poor management decisions or a disappointing outlook. But sometimes investors can slash share prices too far, just as they can drive prices too high. In the fourth quarter of a financial year, fund managers and investors are more inclined to sell stocks for a loss to offset capital gains on others in their portfolios. This, in itself, can provide opportunities, but the key is to identify them. As we kick off the new financial year, brokers outline their oversold prospects and provide reasons why they could be considered as a buy. Some are, indeed, speculative to say the least.   

Cabcharge Australia (CAB)

Chart: Share price over the year to versus ASX200 (XJO)

Carey Smith, of Alto Capital, says the share price is down about 20 per cent in the past 12 months and about 70 per cent since its pre-GFC highs. He says the Victorian Government’s plan to slash electronic card surcharges from 10 per cent to 5 per cent negatively impacted the share price. But Smith maintains the company’s share price should recover in the new financial year once the tax loss selling and short selling abates. “Earnings per share estimates for next year range between 44 cents and 60 cents,” he says. “Even on the lowest estimate, the company is trading on a price/earnings ratio of less than 10 times, and a fully franked dividend yield of at least 7.5 per cent.”   

Billabong International (BBG)

Chart: Share price over the year to versus ASX200 (XJO)

Certainly not for the faint-hearted given several failed takeover attempts and profit downgrades in the past 12 months. In response, the share price was slaughtered to 13 cents. It recently recovered to 19 cents on announcements the company is once again in discussions with private equity companies to sell assets or refinance debt. “In the short-term, BBG is not a story about earnings, but rather what is the value of its existing brands,” Smith says. “Six years ago, the market valued its brand portfolio at more than $4 billion. Today, the market value is less than $100 million. We believe the intrinsic value of group’s brands are significantly higher than the current market value. If a deal is reached with private equity, Billabong will be smaller, but it will be in a much better financial position.”

Newcrest Mining (NCM)

Chart: Share price over the year to versus ASX200 (XJO)

Australia’s biggest gold producer offers buying potential, particularly below $12, according to PhillipCapital’s Brendan Fogarty. He says with the stock recently trading at 10-year lows, there comes a point where the value of the company’s reserves, exceeding 40 years of mine life, present enough value to simply buy and hold. Most gold stocks look significantly oversold, driven even lower from short positions among hedge funds. He says if and when these short positions reverse, the corresponding bounce is likely to be strong. “At present, there are rising fears regarding China’s debt position – this can only be a positive for gold,” Fogarty says. “There’s now market speculation that Newcrest could attract some corporate interest at these levels.”

Premier Investments (PMV)

Chart: Share price over the year to versus ASX200 (XJO)

A Lincoln Indicators’ preferred income stock, PMV operates retail brands in Australia, New Zealand and South Africa. It also holds a 27.5 per cent interest in Breville Group (BRG). Lincoln’s James Samson says the company has performed strongly by expanding brands, such as Peter Alexander and Smiggle. He expects growth to continue and to be further supported by more mature operations. “With the stock heavily sold off since hitting a high of $8.63 in early May, PMV now trades at an attractive fully franked dividend yield of about 6 per cent,” Samson says. “Grossing up this yield for franking credits should provide investors with a tax effective yield of about 8.5 per cent per annum. Consequently, we believe that PMV has been oversold and it offers investors the opportunity to take an attractive yield along with potential capital appreciation.”

Forge Group (FGE)

Chart: Share price over the year to versus ASX200 (XJO)

While the mining services sector is undoubtedly out of favour, Samson says FGE has continued to build its order book. The engineering, procurement and construction (EPC) contractor is in strong financial health and recently won contracts that have sufficiently replaced executed work for the first half of full year 2014. FGE is soon expected to complete the acquisition of a US-based EPC contractor, Taggart Global. “This acquisition has the potential to lift full year 2014 earnings and ensure FGE is growing during a down cycle that has taken a toll on many of its peers,” Samson says. “Having been sold down from a high of $6.98 in March, we believe that grim sector sentiment provides an opportunity for investors willing to take on a higher risk prospect.”

Roc Oil Company (ROC)

Chart: Share price over the year to versus ASX200 (XJO)

ROC is an oil and gas producer with interests in Asia and Australia. The company is ramping up the Beibu Gulf project, with peak production expected towards the end of 2013, which Samson says should act as a catalyst for growth into the first half of full year 2014. “With oil prices remaining somewhat more resilient than other commodities, we believe ROC is oversold at current levels, having fallen from a high of 64 cents in February,” he says. “Further afield, Malaysia’s Balai Cluster development update should be announced towards the end of 2013, ensuring the company’s potential to continue growth into full year 2014.”

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